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Airbus Warns U.K. Investment in Danger in No-Deal Brexit

(Bloomberg) -- Airbus SE threatened to pull its U.K. investments if Britain walks away from the European Union without a deal, upping the stakes for Prime Minister Theresa May as she fights to deliver a Brexit that won’t wreck the country’s economy.

In the starkest warning yet from any major company, the aerospace giant said late Thursday that a departure from the single market and customs union without a transition agreement would lead to “severe disruption and interruption of U.K. production.” Airbus, based in Toulouse, France, would be forced to “reconsider its investments in the U.K., and its long-term footprint in the country.”

“This is a dawning reality for Airbus,” Tom Williams, chief operating officer of Airbus Commercial Aircraft, said in an emailed statement. “Put simply, a No Deal scenario directly threatens Airbus’ future in the U.K.”

The remarks further hem in May, whose proposals aimed at keeping trade as easy as possible after the divorce have been repeatedly knocked back. The European Union is stepping up its rhetoric about the likelihood of a chaotic divorce and is warning companies that they need to prepare for the worst. Anti-Brexit lawmakers, meanwhile, seized on the announcement as more evidence that the government’s approach to the split is harming the economy.

The Brexit debate has focused in recent weeks on internal power struggles -- fights in Parliament, fights in the Cabinet and political games about who would be in charge in a no-deal scenario. Airbus’s warning is a reminder of what failing to reach a negotiated outcome would mean for jobs and ordinary people.

For the first time in two years, it’s the EU side rather than the U.K. that’s making most noise about the chances of a messy walk-out. The warning from Airbus -- a company that offers high-quality jobs across Britain and supports a massive supply chain with its wing-making operation -- comes as May continues to fight with her own government about the kind of Brexit deal she will seek. Britain leaves the bloc in March next year.

Read more from Airbus Chief Operating Officer on Today Show on BBC

Companies have been warning they need clarity and urging the government to take decisions. But this announcement is the strongest yet and goes beyond the usual platitudes. May heads to Brussels later this month for a summit that was meant to be a defining moment in the negotiations and the last gathering of leaders before the divorce deal is signed off in October. Instead, a lack of progress and the chances of a breakdown will be the main point of discussion.

“We have made significant progress towards agreeing a deep and special partnership with the EU to ensure trade remains as free and frictionless as possible, including in the aerospace sector, and we’re confident of getting a good deal that is mutually beneficial,” a government spokesperson said.

EU leaders will also remind Britain at the summit that if a Brexit deal isn’t struck, there will be no transition -- the grace period that businesses are counting on for the first 21 months after the split.

Even if May does secure the planned transition, it’s “too short” for Airbus to make “required changes with its extensive supply chain,” the company said, adding that it would carefully monitor any new investments in the U.K. and refrain from extending its British supplier base.

Other companies are also starting to move, with auto manufacturing one of the crucial industries at risk. Jaguar Land Rover is moving production of its Land Rover Discovery SUV from its historic Solihull facility to Slovakia by early next year and will lay off workers.

Unilever dealt London a significant blow in March when it said it picked the Netherlands as its main headquarters. The maker of quintissentially British brands like Marmite spread and Lipton tea had maintained a dual nationality for more than a century. This month, it said the decision makes it unlikely to remain in the benchmark FTSE 100 stock index -- another setback to May’s vision for a U.K. as an attractive investment destination.

As well as employing 14,000 people at 25 sites in Britain, Airbus has more than 4,000 U.K. suppliers and supports more than 100,000 jobs in its British supply chain.

The manufacturer has repeatedly warned about a risk of Brexit sidelining the U.K. when it comes to future aerospace projects. Its German operation is working with French warplane specialist Dassault Aviation SA on a next generation of European fighter aircraft, rather than selecting its historic partner in combat jets, London-based BAE Systems Plc.

Even with existing manufacturing operations, there are concerns. Airbus has held talks with suppliers about measures to safeguard production, including the stockpiling of components, to help sustain deliveries in the event of a transition-less Brexit leading to border delays.

“We’ve become increasingly frustrated with the lack of clarity and obviously time is running and it’s coming up to less than nine months to go,” Williams told BBC Radio 4. “We have come to the point where we have to make serious decisions and quite often those decisions are long term in nature and without clarity it’s too dangerous for us to proceed.”

Airbus Chief Executive Officer Tom Enders pledged in February that Airbus would retain its British operations “long into the future’’ in what seemed then to be a turnaround from previous attacks on the planned divorce. He said then in a letter to Business Secretary Greg Clark that the company would continue to see the U.K. as a “home country and a competitive place to invest.”

Since that communication the possibility of a no-deal Brexit appears to have increased, with European Commission President Jean Claude Juncker saying Thursday in Dublin that the the two sides remain far apart on the “hardest issues” and that he is stepping up preparations for a breakdown in talks.